Insurance

Issue: Citizens Announces Rate Hikes.

June 4, 2006

Cutting Citizens Property Insurance Corp. free is going to cost its customers plenty. Floridians should hope the measure stabilizes the state-backed company, even though the plan contains its share of wishful thinking.

Following the last two hurricane seasons, Citizens has bled $2 billion worth of losses. The red ink from the 2004 season was covered by a $516 million assessment on all non-Citizens policies in Florida.

Citizens planned to levy an 11 percent surcharge on Florida policies to cover another huge deficit from last year's storm damage. The Legislature smartly stepped in to write a check from sales tax revenues to cover a big chunk of the loss, and state residents will be billed the balance over the next decade.

Tallahassee's generosity comes with strings attached. Citizens has to come up with enough money from customers to cover future damage.

That's where the two-step increases announced last week come in. Citizens has no choice but to notch up rates to meet its liabilities.

In theory, it makes sense. In practice, there's room for skepticism, at least in the short term.

Past experiences cast doubt on Citizens' ability to drum up enough cash to cover its immediate exposure, especially in South Florida, without bleeding its customers dry. The rate hikes allow Citizens to rake in more funds, of course. But the company already charged above-market rates, per Florida law, and the past two hurricane seasons still left it seriously in the red.

Sure, it would help if the Sunshine State could duck a major storm for a few seasons, allowing Citizens to generate more ample reserves. That's where the wishful thinking comes into play.

The problem isn't so much at Citizens as it is with Florida's badly battered insurance market. We may soon learn, again, that it's hard to cure Citizens' ills without fixing the private market.